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Thursday, February 14, 2008

Check out this op-ed by Eliot Spitzer in today's Washington Post. The N.Y. Governor and former N.Y. attorney general argues that the Bush Administration, by insisting that federal law preempted the states' efforts to curb predatory lending, created and perpetuated the mortgage crisis. Spitzer explains that the states enacted laws and filed suits to try to curb predatory practices because they saw the current crisis looming. Sptizer explains the federal government's role:

"What did the Bush administration do in response? Did it reverse course
and decide to take action to halt this burgeoning scourge? As Americans
are now painfully aware, with hundreds of thousands of homeowners
facing foreclosure and our markets reeling, the answer is a resounding
no."

"Not only did the Bush administration do nothing to protect
consumers, it embarked on an aggressive and unprecedented campaign to
prevent states from protecting their residents from the very problems
to which the federal government was turning a blind eye."

One of the things that is missing from this dialogue is the responsibility of state regulators to regulate the state-chartered brokers and lenders where the vast majority of subprime originations occurred in the key years pointed out.

Comptroller of the Currency John C. Dugan responded by saying, "The OCC extensively regulates the activities of national banks, including mortgage lending. The OCC established strong protections against predatory lending practices years ago, and has applied those standards through examinations of every national bank. As a result, predatory mortgage lenders have avoided national banks like the plague. The abuses consumers have complained about most — such as loan flipping and equity stripping — are not tolerated in the national banking system. And the looser lending practices of the subprime market simply have not gravitated to national banks: They originated just 10% of subprime loans in 2006, when underwriting standards were weakest, and delinquency rates on those loans are well below the national average.

Nothing the OCC has done has prevented the states from regulating and preventing abuses among the lenders that they license – lenders that are the source of most of today’s problems. The states have ample authority – as well as clear responsibility – to set standards for these lenders and enforce them. It defies logic to argue that preemption was an impediment. National banks are bound to obey the strict standards enforced by the OCC everywhere they operate – even in states that had far less rigorous standards. The states should have applied equally rigorous standards to the non-bank lenders that were responsible for the bulk of the problems."